TLDR: The article discusses the challenges associated with Bitcoin Ordinals, the NFTs of Bitcoin, emphasizing scalability issues due to Bitcoin limitations. The proposed solution (EAST Account Vault Model) involves leveraging NEAR's Chain Signature and Account Aggregation, allowing smart contract functionalities for Bitcoin Assets.

Ordinals: The Good, The Bad, and The Ugly

The year 2023 witnessed the arrival of Bitcoin Ordinals, a novel approach to creating “NFTs” directly on Bitcoin. By assigning unique ordinal numbers to individual satoshis (the smallest unit of Bitcoin), data like images, videos, and even text can be inscribed, giving birth to truly on-chain Bitcoin NFTs. This innovation ignited excitement, like BRC-20 (token equivalent) tokens ORDI and SATS. And with NFT collections like BTC Degods, Bitcoin Frogs, and Pizza Ninjas garnering substantial attention.

However, the path for wider adoption isn't without hurdles. The BRC-20 token-based minting competition, exemplified by projects like "ORDI” highlights the significant issue of high gas fees on Bitcoin. Additionally, the inherent limitations of Bitcoin script compared to the versatility of smart contracts pose challenges for complex trading or programmability. Finally, onboarding remains a hurdle: both minters and traders need BTC, creating a barrier to entry for those unfamiliar with the cryptocurrency.

Bridging these gaps is crucial for the sustained growth of Ordinals. Utilizing stablecoins like USDT/USDC for minting could attract new users comfortable with familiar currencies. This, combined with improvements in user interfaces and accessibility tools, could unlock the true potential of Ordinals, paving the way for mass adoption and ushering in a new era for digital collectibles on the world's biggest blockchain.

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The current state of Ordinals scaling and programmability

Partially Signed Bitcoin Transactions (PSBT) is the de facto way to trade Ordinals, this solution is used across Ordinals marketplaces on Bitcoin. This technology allows multiple parties to contribute signatures to a transaction, essentially enabling seller to sign PSBT to sell their NFTs, and then the buyer sign the same transaction plus attaching BTC. Lightning Network, the Bitcoin's fast payment channel, is also used for facilitating payments for ordinals transactions such as minting.

Bridging Ordinals to other blockchains presents another potential path forward. Projects like Rootstock aims to enable NFT movement between Bitcoin and compatible blockchains, offering potential solutions for scaling and programmability limitations. However, this introduces security considerations and the complexity of bridge protocols themselves. The other way around, bridging EVM assets to Bitcoin is already established with protocols like BRC-721E and Teleburn-1155.

Finally, there's the issue of standards. While BRC-20 tokens were initially favored, they have problems like creating too many UTXOs, led to the creation of Runes, which was initiated by Ordinals’ creator Casey Rodarmor. Runes enable a UTXO to contain any amount of any number of assets.

Overall, Ordinals hold immense potential, but scalability, programmability, and standardization issues require innovative solutions. One solution in particular is using EAST Account Vault Model.

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Scaling Ordinals with Account Vault Model (AVM)

“The Account Vault Model (AVM) is a new paradigm of cross-chain transactions. It works by transferring the ownership of an account to a smart-contract. This AVM is built on top of the NEAR account model, where an account is human-readable, permissioned through access keys, and could host a smart contract inside it. The ability to manage an account using multiple access keys enabled the transfer of an account to a smart-contract.”

This is an excerpt from the first article explaining AVM. If you haven’t read the first article, please do it now here. The followings are the steps needed to trade Ordinals on AVM.

First, a NEAR account will create a sub-account, this will act as the Account Vault, e.g. temp.alice.near. This account will have its Bitcoin address (vault-2.btc), which owns an Ordinal. The Ordinal inside the address can be transferred from any other address, or minted a new Ordinal.

Figure 1 Account Vault Generation

Next, this account temp.alice.near will be sent and owned by the marketplace in a wrapper contract (smart-contract.near). Technically, the full access key will be given to the marketplace, and the marketplace will replace the access keys with a new one. The marketplace needs to know what Ordinals this account holds, this information will be given by the EAST decentralized indexers.

(EAST decentralized indexers are responsible for indexing Ordinals, this will be explained more in detail another time, for now let’s keep it simple).

Figure 2 Wrapping Account Vault as NFT

After receiving the account, the marketplace will wrap it as an NFT on NEAR. Thus, this account can be traded on any NEAR NFT marketplace. After wrapping the Ordinal NFT, the seller can put it as direct sale, receiving offers, or even starting an auction. To onboard mainstream masses you can create a sale that accepts USDT/USDC as payment, you can see the flow with the diagram below.

Figure 3 AVM-based Ordinals trading with USDC

When a buyer wants to unwrap it back to Bitcoin, several steps must be taken. The NEP-171 NFT will be burned and the buyer will be given new full access keys for the account. After the buyer is in control of the account (temp.alice.near), he/she can sign a transaction to send the Ordinal to his/her other Bitcoin address.

Conclusion

The future of Ordinals hinges on overcoming its limitations. Innovative solutions like the Account Vault Model (AVM) offer promising avenues for overcoming programmability constraints. Standardization efforts like Runes are also crucial for long-term sustainability. Ultimately, whether Ordinals flourish or fade depends on its ability to bridge these gaps and deliver on its potential. The Account Vault is built on top of NEAR Blockchain, our solution is fully decentralized and non-custodial without needing a centralized bridge.

Introducing EAST Account Vault Model (AVM) - A decentralized, bridgeless, non-custodial way to address the Bitcoin scalability problem.

TLDR: The article discusses the challenges associated with Bitcoin, emphasizing scalability issues due to its limitations. The proposed solution (EAST AVM) involves leveraging NEAR's Chain Signature and Account Aggregation, allowing smart contract functionalities for Bitcoin Assets.

The hard things about Bitcoin

Bitcoin has been an interesting and controversial topic over the last year because of Ordinals. Ordinals or the “NFTs” of Bitcoin have been both an innovation and controversial topic since last year. This technology is possible because of two recent upgrades on Bitcoin: Segregated Witness (2017) separating Transaction Data and Witness Data, and Taproot (2021) increasing network capacity and batch transaction processing. Ordinals work by inscribing metadata on Witness Data into an individual Satoshi, this is known as Inscription. Since its inception, this innovation has attracted a lot of minters and traders, but also a lot of controversy from within the Bitcoin community.

So, what’s the problem with Bitcoin and Ordinals? Well, there’s one problem specific to this article, and you guessed it right, scalability. Bitcoin does not scale well, and the reasons are

1. Bitcoin smart contract: Bitcoin is not designed for smart contracts, rather it provides a non-turing complete, stack-based, language named Bitcoin Script. Most of the programmability is achieved using PSBT (partially-signed-bitcoin-transactions), this enables users to collaborate on a transaction, e.g. marketplace listing and buying.
2. High Transaction Fees: Bitcoin’s average gas fee peaked at 37 USD transaction in December, 2023, the year Ordinals launched. Ordinals minting creates a high number of transactions, that leads to network congestion, slowed transactions, and higher fees.

Why do we need to solve this? Why not just leave Bitcoin as it is as a store of value? The answer lies with the influx of capital from BTC and the demands for Bitcoin blockspace, especially Ordinals that catalyzes Bitcoin’s consumption over the past year.

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A new programmability layer for Bitcoin

The NEAR ecosystem is not just a blockchain, but consists of the layer one blockchain that could scale to 1B+ users, security aggregation stack like NEAR DA, decentralized frontends that provide multiple apps from many chains, and many more. In March 2024, NEAR will release Chain Signatures and Account Aggregation that enables multi-chain even further.

Figure 1 Chain Abstraction with Account Aggregation

Now here’s where NEAR’s Chain Signature and Account Aggregation will be the winner. Chain signatures produce signatures that are signed by Secure Multi-Party Computation (MPC) without revealing their private keys. Account Aggregation is a new feature that allows a NEAR account to control multiple addresses from different chains. This makes it possible for a single NEAR account to sign transactions to any other chain, including Bitcoin.

At EAST Blue, we are building our stack on top of NEAR, leveraging the whole ecosystem like the L1 for smart contracts and Chain Signature / Account Aggregation to address Bitcoin scalability problems.

Figure 2 EAST Blue Account Vault Model (AVM)

The Account Vault Model (AVM) is a new paradigm of cross-chain transactions. It works by transferring the ownership of an account to a smart-contract. This AVM is built on top of the NEAR account model, where an account is human-readable, permissioned through access keys, and could host a smart contract inside it. The ability to manage an account using multiple access keys enabled the transfer of an account to a smart-contract.

Since an account can create another sub-account (which could also be a smart contract), account vaults are created without inventing an entirely different protocol or smart contract. For example, a NEAR account will create a sub-account, this will act as the Account Vault, e.g. temp.alice.near. Thanks to Account Aggregation, this account will have its derived Bitcoin address (vault-1.btc), that can contain assets such as BTC or Ordinals. The ownership will then be given to a smart contract, to be handled as an asset.

The application of this approach would follow the capabilities of NEAR smart contracts. One example is an NFT marketplace that trades Account Vaults containing Ordinals. The wrapped Account Vaults can be traded, auctioned, staked, and borrowed just like ordinary NFTs. Or, imagine a BRC-20 launchpad that starts as a NEAR smart contract, and then users can unwrap their tokens as real BRC-20 assets on Bitcoin.

BTC itself could be transferred to the NEAR blockchain to be traded on DApps. A smart contract could create many Account Vaults, each acting as an individual address for a particular NEAR account. Users could then transfer BTC to this address and mint a new BTC asset on NEAR for the associated NEAR account. The newly minted BTC can be traded with other existing assets, swapped, borrowed, and so on.

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Similar Solutions

Most solutions that try to solve this scaling problem are Bitcoin's Layer 2 network with Ethereum Virtual Machine (EVM) as the execution layer. Examples of this include Conflux, Bitfinity, and Botanix. Earlier projects like Rootstock (RSK) have already added smart contract features (using EVM) to Bitcoin. Stacks (STX) also provides programmability with its Clarity and the trustless two-way peg.

Our scaling solution is different by not developing a new blockchain. Instead, we integrate Bitcoin Assets into the NEAR protocol through The AVM. This way, Bitcoin assets can work just like other things on NEAR and connect with existing projects. By employing NEAR as both the settlement and execution layer for the EAST Blue infrastructure, we capitalize on NEAR's established decentralization and security. This approach stands in stark contrast to other solutions that require initializing validators or sequencers, which often results in lesser decentralization and security.

Conclusion

The proposed EAST Account Vault Model (AVM) leverages NEAR's Chain Signature and Account Aggregation to introduce a new programmability layer for Bitcoin. This solution involves creating a NEAR sub-account acting as an Account Vault, linking it to a Bitcoin address with an Ordinal. Since the Account Vault is built on top of NEAR Blockchain, our solution is fully decentralized and non-custodial without needing a centralized bridge.

One particular use case of Account Vault is to handle Bitcoin Ordinals, imagine selling, buying, offering, and auctioning your Ordinals just like any other NFT. We will discuss this in more detail later, so stay tuned!